TVA said the rate increase, which is slightly below the rate of inflation in the Consumer Price Index, is necessary for new power capacity and environmental enhancements.

That rate increase would equal about $1.70 more a month for the average Tennessee Valley resident using 1,000 kilowatt-hours a month. It will take effect with the FY2015 budget year that begins Oct. 1, 2014.

"We have carefully considered the impact this might have on our customers and the businesses, industries and people of the region," said Johnson. "This small rate adjustment – in addition to our internal cost reductions – is necessary to meet revenue requirements for 2015."

TVA reduced its debt by $1.2 billion in FY2014

The approved 2015 budget also funds:

About $1 billion in base capital to fund continued operation of current assets

Completion of Watts Bar Nuclear Unit 2

A new gas plant at Paradise

Replacing the Allen coal-fired plant near Memphis with a new combined-cycle gas plant